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Monday, August 22, 2016

Alphabet Soup: The NLRB Weighs in on M & A

Employers by now are likely
accustomed to hearing about the National Labor Relations Board (“NLRB”) and its
efforts to firmly insert itself into both union and non-union workplaces. For
the past few years, the NLRB has issued countless decisions invalidating what
have otherwise been deemed routine and sensible employment policies, such as requiring
confidentiality of internal investigations, clarifying at-will employment, and
prohibiting workplace bullying. Recently, however, the NLRB issued a decision involving
corporate mergers and acquisitions that will impact companies’ C-suite
initiatives, and not just their human resources department.

When acquiring an entity with a
unionized workforce, companies must always determine whether they are also acquiring
the union contract currently in place, or merely just an obligation to bargain
with the union over a new contract. Under established law, when an acquisition
of a unionized entity occurs, a purchaser only becomes bound by the seller’s
collective bargaining agreement if it is “perfectly clear” that the purchaser
plans to retain most or all of the seller’s bargaining unit employees, and the
employees reasonably believe their terms and conditions of employment will
remain unchanged. If the purchaser announces an intent to establish new terms
and conditions of employment before hiring the seller’s employees, the
purchaser is free to set these initial terms until a new collective bargaining
agreement is agreed upon with the union.

In Nexeo Solutions, LLC,
364 NLRB No. 44 (July 18, 2016), the NLRB found that the employer lost its
right to set initial terms and conditions of employment for the unionized employees
of an acquired company. However, this finding represented a radical departure
from board law because it was largely based on statements and representations made
to the employees by the seller, not
the purchaser. In justifying its decision, the board relied on an email from the
seller's president to the employees stating, "[W]e anticipate
approximately 2,000 Ashland Distribution employees and dedicated resource group
and supply chain partners will transfer to the new business." The board
also relied on an another employee communication that read, "Under the
terms of the agreement, for at least 18 months following closing, the newly
independent company is required to provide, to each transferred employee, base
salary and wages that are no less favorable than those provided prior to
closing; and other employee benefits that are substantially comparable in the
aggregate to compensation and benefits as of January 1, 2011."

The board's reliance on these
communications completely disregarded the purchaser’s later statements, which
made it clear that any continued employment would be subject to different terms
and conditions. The board held that the seller's statements to the employees may
be imputed to the purchaser, which is a radical departure from the board's
previous requirement that a purchaser would only be bound by the seller’s
collective bargaining agreement if it evinced an intention to retain all
unionized employees with the same terms and conditions of employment.

Given this new ruling, employers
involved in mergers and acquisitions with a unionized workforce will need to
carefully monitor all messaging to affected employees. This may require a
detailed provision in the purchasing agreement or other relevant side
agreements. Unfortunately, due to the NLRB’s ruling, companies will have to
engage in a difficult balancing act in order to achieve a smooth sale while tempering
employee concerns about their terms and conditions of employment going forward
under the new entity.

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